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Thursday, July 07, 2016

Stocks Disagree on Direction Ahead of Jobs Data

Charles Schwab: On the Market

Posted: 7/7/2016 4:15 PM ET

Stocks Disagree on Direction Ahead of Jobs Data

U.S. stocks closed the trading session mixed with some modest early
gains fading as investors may have been exercising some caution ahead of
tomorrow's June labor report release. Crude oil prices reversed solidly
lower on the heels of a weekly report that showed stockpiles fell less
than forecasted, while weekly jobless claims declined and ADP reported a
better-than-expected increase for private sector jobs. Treasuries and
gold were lower and the U.S. dollar was higher.

The Dow Jones Industrial Average (DJIA) declined 23 points (0.1%) to
17,896, the S&P 500 Index decreased 2 points (0.1%) to 2,098, and
the Nasdaq Composite added 18 points (0.4%) to 4,877. In moderate
volume, 864 million shares were traded on the NYSE and 1.7 billion
shares changed hands on the Nasdaq. WTI crude oil was $2.29 lower at
$45.14 per barrel, wholesale gasoline dropped $0.07 to $1.36 per gallon
and the Bloomberg gold spot price decreased $3.76 to $1,360.02 per
ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to
six major world currencies—was 0.2% lower at 96.27.

PepsiCo Inc.
(PEP $107) reported core 2Q EPS of $1.35, above the $1.29 FactSet
estimate, on revenues of $15.4 billion that matched expectations. The
snack and soft drink maker credited strength in the U.S. market and its
cost-cutting initiatives that were able to overcome weaker sales abroad.
PEP also raised its full-year forecasts. Shares of PEP closed nicely
higher.

Danone SA (DANOY $14) has agreed to buy WhiteWave Foods Co.
(WWAV $56) for $10 billion, in a move to add the Denver-based company's
popular Silk soy milk brand to its expanding organic food segment. WWAV
shareholders will receive $56.25 per share in cash for each share
owned, a 19% premium to Wednesday's closing price. Danone's Chief
Executive Officer Faber said the acquisition will "allow us to double
the size of our U.S. business and become the world leader in organic."
DANOY finished slightly higher, while WWAV rallied.

Jobs data highlights economic calendar

Weekly initial jobless claims (chart)
declined by 16,000 to 254,000 last week, versus the Bloomberg estimate
of 270,000. The prior week's figure of 270,000 was downwardly revised to
268,000. The four-week moving average declined by 2,500 to 264,750,
while continuing claims fell 44,000 to 2,124,000, north of the estimated
level of 2,123,000.

The ADP Employment Change Report showed private sector payrolls
rose by 172,000 jobs in June, above forecasts of 151,000, while May's
gain of 173,000 jobs was revised lower to a 168,000 rise. Today’s ADP
data, which does not include government hiring and firing, comes ahead
of tomorrow's broader June nonfarm payroll report, expected to show an increase of 180,000 jobs, while private sector payrolls are expected to rise 170,000 (economic calendar). The unemployment rate is forecasted to tick higher to 4.8% from 4.7% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

In the final hour of trading tomorrow, we will also receive the latest consumer credit report,
which is expected to show consumer borrowing for the month of May
expanded by a level of $16.0 billion, after increasing by $13.4 billion
in April.

European equities finished higher, rebounding from a three-day drop, as
optimism re-surfaced that central banks will be supportive in the wake
of the U.K. Brexit vote, which has fueled risk aversion and global
growth concerns, and after yesterday's minutes from the Fed's June
meeting showed continued dovishness. Also, anxiety toward the Italian
banking sector softened amid increased hopes that a resolution to aid
the battered sector can be achieved. Moreover, the British pound
recovered somewhat after falling to a 31-year low versus the U.S.
dollar. For deeper analysis of the impact of the Brexit vote, see the
Schwab Center for Financial Research's recent article, Brexit: What Investors Should Know, at www.schwab.com/marketinsight
and be sure to check out the video from Schwab's Managing Director of
Trading and Derivatives, Randy Frederick and Schwab's Chief Global
Investment Strategist, Jeffrey Kleintop, CFA, titled Brexit Aftershock: When Will the Markets Calm Down?, at www.schwab.com/insights. Follow Randy and Jeff on Twitter: @randyafrederick and @jeffreykleintop.

Economic news in the region was mixed, with a better-than-expected read
on U.K. industrial production being somewhat overshadowed by a
surprising decline in production out of Germany, while France's trade
deficit narrowed and housing prices in the U.K. rose above forecasts.
The euro was lower versus the U.S. dollar, while bond yields in the
region were higher.

Stocks in Asia finished mixed, with the angst surrounding the U.K.
Brexit vote fallout easing somewhat, but the global growth concerns
remained. The flight-to-safety continued to boost the yen, which
fostered a decline for Japanese equities. Elsewhere, Australian
securities managed gains despite Standard & Poor's lowering the
nation's AAA-credit rating outlook to negative from stable, saying "the
government's fiscal stance may no longer be compatible with the
country's high level of indebtedness." The move follows last weekend's
general elections that rendered inconclusive results. Mainland Chinese
stocks were mostly flat, but securities trading in Hong Kong gained
ground for the sixth-straight day. Meanwhile, South Korean stocks rose
and Indian equities inched higher following yesterday's holiday.

The international economic docket for tomorrow will yield trade data
from Japan and Germany, industrial and manufacturing production from
France and labor costs and the trade balance from the U.K.

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